CUNA Letter On Modifying Bankruptcy Code (HR 3609)

November 15, 2007

FOR IMMEDIATE RELEASE
Contact:
Patrick Keefe, CUNA Communications
(202) 508-6765; pkeefe@cuna.com

Urging a “surgical” approach in modifying bankruptcy law in response to the subprime mortgage crisis, CUNA has told the leaders of the House Judiciary Committee that credit unions can support legislation that includes five limitations:

• Permitting judges to lower the principal amount of a loan to no less than the value of the house at the time the mortgage was made;
• Permitting judges to lower interest rates on mortgages to no less than current market rates for standard mortgage loans;
• Permitting judges to extend the remaining term of a loan secured by a borrower’s primary residence by up to five years, but to no more than 40 years.
• Permitting the cancellation of prepayment penalties;
• Extending the authority for bankruptcy judges to modify the terms on loans secured by a borrower’s primary residence ONLY to loans made between Jan. 1, 2003 and the date of enactment of the bill.

“We understand the need to be responsive to the current crisis,” wrote CUNA President and CEO Dan Mica to Committee Chairman John Conyers, D-Mich., and Ranking Member Lamar Smith, R-Texas. “We urge the Committee to be surgical in its efforts to address the current crisis through amendments to the code.”

The letter was aimed at consideration of HR 3609, the Emergency Home Ownership and Mortgage Equity Protection Act, which is under consideration by the committee.

Mica pointed out that the five limitations outlined by CUNA not only limits “cramdowns” on credit unions, but also sets a timeframe that targets a solution to the specific problem.

“Without this time limitation, there could be significant increases in the cost of mortgage credit in the future for those with less than perfect credit,” Mica wrote.

Mica added that the approach offered by CUNA is a “targeted and responsible response that deals with a serious public policy issue without producing numerous unintended consequences, or lost beyond the problem itself.”

The complete text of the CUNA letter to the committee leaders follows:

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November 14, 2007

The Honorable John Conyers
Chairman
Committee on Judiciary
United States House of Representatives
2138 Rayburn House Office Building
Washington, DC 20515

The Honorable Lamar Smith
Ranking Member
Committee on Judiciary
United States House of Representatives
2142 Rayburn House Office Building
Washington, DC 20515

Dear Chairman Conyers and Ranking Member Smith,

On behalf of the Credit Union National Association (CUNA), I am writing regarding H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act. CUNA represents nearly 90% of America’s 8,400 credit unions and 87 million credit union members.

While we have considerable concerns with any legislation that would open the Bankruptcy Code to amendment so soon after major revisions were enacted, we understand the need to be responsive to the current crisis in the subprime mortgage market. We urge the Committee to be surgical in its effort to address the current crisis through amendments to the code.

Credit unions can support legislation to eliminate the current exemption for first mortgages from modification during Chapter 13 bankruptcy proceedings only if such legislation includes the following limitations:

1. Permits bankruptcy judges to lower the principal amount of a loan, no less than the value of the house at the time the mortgage was made.
2. Permits bankruptcy judges to lower interest rates on mortgages, no less than current market rates for standard mortgage loans.
3. Permits bankruptcy judges to extend the remaining term of a loan secured by a borrower’s primary residence by up to five years, but to no more than 40 years.
4. Permits the cancellation of prepayment penalties.
5. Extends the authority for bankruptcy judges to modify the terms on loans secured by a borrower’s primary residence ONLY to loans made between January 1, 2003 and the date of enactment of the bill.

This approach not only limits “cramdowns” to amounts that result from: (a) high fees that were financed into the mortgage, (b) negative amortization, and (c) greater than 100% loan-to-value lending; but it would also set a timeframe that targets the solution to the specific problem. Without this time limitation, there could be significant increases in the cost of mortgage credit in the future for those with less than perfect credit. This time limitation would also reduce substantially any impact the law might have on the secondary market’s willingness to buy mortgage-backed securities in the future. Finally, given likely passage of legislation prohibiting predatory mortgage lending going forward (H.R. 3915), the need to allow modification to loans secured by a borrower’s primary residence would not exist in the future.

We believe that the approach we have outlined above represents a targeted and responsible response that deals with this serious public policy issue without producing numerous unintended consequences, or lasting beyond the problem itself.

On behalf of America’s credit unions, thank you very much for consideration of our views on H.R. 3609. We look forward to working with the Committee on this issue.

Sincerely,

Daniel A. Mica
President/CEO
Credit Union National Association

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